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The MISTs of time - new emerging markets

As the BRIC foundations become firmly established, where next – and how soon – for those pharma companies seeking to exploit the developing markets?

The MISTs of time - new emerging markets

In 2001, Goldman Sachs' Jim O'Neill coined the acronym BRIC as a cover-all phrase for four of the world's leading emerging economies, symbolising the beginnings of a global economic power shift away from the developed G7 nations.

O'Neill believes that it wasn't until 2008 that the BRIC concept was finally confirmed, with the Big Four developing nations proving able to make their own policy responses as the global economy around them imploded.

Five years later and the evolution continues; in some quarters, BRIC has acquired a South African member and become BRICS, in others, the 'founding members' have welcomed Mexico and Turkey to create the rather less catchy BRICMT. O'Neill himself has created a new agglomeration to describe the next tier of emerging economies – combining Mexico, Indonesia, South Korea and Turkey to form MIST. If it all sounds rather foggy, then the pharmaceutical industry could perhaps benefit from a clearer view of tomorrow's growth markets.

Before looking too far ahead, it's important to benchmark the here and now. It would be churlish to suggest that the BRIC economies are yesterday's news. Pharma's presence in these countries – along with the local infrastructure and health systems to deliver effective patient care – is still in a relatively embryonic state. But the widespread belief is that those businesses that are investing in these markets will reap the long-term benefits.

Whether the BRIC countries will, as forecast, overtake the G7 economies by 2027 remains to be seen – but as Jim O'Neill stated earlier this year, the 'economic might' of the four BRICs is so vital to the world economy, that people 'have to start thinking about them'. But beyond them, where next?

BRICMT
Booz & Co's industry-wide survey of the emerging markets described the BRICMT cluster as the dominant force of emerging economies. Its inclusion of Mexico and Turkey at the top table is slightly at odds with other analysts who place the countries as second tier markets at present. Undoubtedly, both economies are growing. Mexico is currently the second biggest emerging pharma market in Latin America with total sales of $11bn in 2011. IMS Health predicts compound annual growth of 2.5 per cent until 2016, leading to estimated sales of $12.5bn. However, it anticipates Mexico will be overtaken by both Argentina and Venezuela in the same period.

Certainly the pharma market in Mexico will grow at a slower rate than the country's overall economy, with the IMF forecasting compound annual GDP growth of 3.9 per cent over the next five years.

Likewise, recent progress in Turkey belies any suggested status alongside the leading BRICs. Pharmaceutical sales in Turkey rose by 3.2 per cent to $8.9bn in 2011, but IMS Health forecasts negative growth of -1.3 per cent in 2012. At a national level, GDP grew by 9.2 per cent and 8.5 per cent in 2010 and 2011 respectively, but dropped to 2.2 per cent in 2012. Analysts predict that the Turkish economy will recover in 2013 – with IMS Health forecasting that pharma sales will rise to $10.3bn by 2016.

BRICS
South Africa was officially welcomed as a leading emerging economy in 2011, when it became a full member of the BRIC cluster, forcing the evolution to BRICS. The South Africa economy has recovered from its contraction in the heat of the 2008 global economic crisis, but is growing at a slower rate than many forecast. Earlier this year, South Africa was described as 'more of a briquette than a BRIC' and, with data suggesting the country contributes just 2.5 per cent of the total BRIC GDP, it's easy to see why Jim O'Neill disputes its current ranking as a 'BRICS' economy. Total pharmaceutical sales in 2011 reached $3.3bn – with IMS Health forecasting compound annual growth of 7.7 per cent until 2016, leading to total sales of $4.8bn. Interestingly, IMS predicts that the availability of NMEs launched between 2006 and 2010 will grow from 15 per cent in 2011 to almost 50 per cent in 2016.

MIST
The recently named MIST cluster has been identified as the next tier of large emerging economies. At present they appear to be some way behind their BRIC counterparts. Total GDP of the MIST nations was $3.9 trillion in 2011, compared to $13.5 trillion for BRIC. However, with each nation being a member of the G20 and boasting large populations and signifi cant economic bases, their market potential is strong. The Indonesian pharmaceutical market was valued at just $4.3bn in 2011, but IMS Health predicts that consistent double-digit growth will see total sales rise to $7.5bn by 2016. Overall, the Indonesian economy is the 16th largest in the world – and forecast by McKinsey to become the 7th largest by 2030. The World Economic Forum's Global Competitive Index describes Indonesia as one of the best performing countries in the developing Asia region – behind Malaysia and China, but ahead of Vietnam, the Philippines and, interestingly, India.

Likewise, South Korea is also a global economic powerhouse, ranked as the 15th biggest market economy in the world. In pharmaceutical terms, the country had previously been considered a 'pharmerging' market by IMS Health, but was reclassified as a 'developed market' in 2010. IMS predicts compound annual growth of 6.4 per cent through until 2015 and ranks South Korea among the top 15 global pharma markets. Healthcare spending is rising, with a National Health Insurance scheme providing coverage for around 97 per cent of the population.

Prescribing levels are also increasing – with South Korea offering both western and Asian medicines at over 80,000 healthcare centres. But with the government spending under increased pressure, the country is re-evaluating its reimbursement prices, placing many products at risk of price cuts. The market is fragmented with around 300 pharmaceutical companies and a further 500 wholesalers.

Africa
Africa is perceived to present a huge opportunity for pharma. The Booz study shows that pharma executives expect two African clusters – sub-Saharan Africa and North Africa – to be among the three groups of emerging markets with the highest increase in importance.

With a combined GDP of $2.9 trillion, Africa ranks the fifth biggest in the world – behind Germany, but ahead of France and Brazil.

Moreover, the African pharmaceutical market is expected to enjoy year-on-year growth of 10.6 per cent to yield pharmaceutical sales of $45bn in 2020. For many, there is a long way to go, but the potential opportunity is substantial. Booz notes: “Africa does not yet play a signi cant role in pharmaceutical sales, since South Africa, Egypt, Algeria, and Nigeria are the only markets in the region where the volume of the pharma market exceeds $1bn.

However, in the coming years, as sub-Saharan Africa develops economically, the long-term potential o ered by this vast continent will be huge.”

The disease profile in Africa is broad – providing great potential for the drug industry across a wide range of therapy areas. The continent is battling a well-known challenge in HIV/AIDS, with almost 70 per cent of patients living in the region. Beyond this, infectious diseases, maternal and perinatal conditions and nutritional de ciencies account for more than two thirds of the continent's disease burden. Likewise, lifestyle diseases, particularly cardiovascular conditions and diabetes, are predicted to increase rapidly in the next two decades. Cancer rates, on the other hand, are not expected to grow as quickly as in other regions.

However, Booz respondents identified a variety of challenges that are making pharmaceutical executives reluctant to make Africa a priority market for now. The lack of healthcare infrastructure across the continent is a primary concern, while 'lack of affrdability' is also regarded as a major limitation to business growth. Supply chain and distribution issues, as well as concerns over the lack of reimbursement and public funding in Africa, provide further worries for pharma.

The Booz study reports that pharmaceutical executives appear hesitant to commit themselves to long-term investments in second-tier markets and Africa. Economic and sociopolitical stability in Africa – along with concerns over the healthcare system and quality of care – has led to caution among pharma companies in terms of investing in local infrastructure in the same way they have done in the BRIC nations. At present, while companies weigh up the opportunity, many prefer to partner with local distributors and collaborate with local NGOs and Foundations.

The industry is clearly exercising caution in capitalising on the opportunities presented by Africa. Revealingly, the majority of Booz respondents said that during the next five to ten years, they do not expect to deploy the same go-to-market strategies that they have favoured in mature markets. Conversely, in the same period, two thirds of respondents expect to apply similar sales and marketing strategies in BRICMT markets as those used in traditional Western markets.

Beyond BRIC
It is increasingly clear that the global pharma sector, like many developed industries, is looking outside its traditional and mature markets for sustainable long-term growth.

Naturally, efforts have focused on the BRIC markets, and companies are beginning to ramp up activity in those regions as their associated local healthcare systems establish and evolve.

But, although the industry appears con dent of eventual success, the fruits of labour are yet to emerge. As such, the search for a life beyond BRIC remains in its infancy. Pharmaceutical companies are tentatively surveying secondtier markets and rising stars like Africa, but are taking a pragmatic, cautious approach. Striking the right balance between maintaining lean operations in mature markets and investing in the developing nations promises to be a key challenge for multinational pharmaceutical organisations in the coming years. Jim O'Neill's acronyms may be changing, but there's still a hell of a lot resting on those BRICs.

This article was originally published in the PME supplement Pharma and BRIC

5th August 2013

5th August 2013

From: Sales

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